Ch 8 - Contract Formation

Void Contract

1.) A contract having no legal force or binding effect. 2.) an agreement of no legal effect 3.) no contract at all 4.) are unenforceable - appears to be an agreement but lacks an essential requirement and enforceability - EX. is an apparent agreement that has an illegal purpose; a business contract that involves the shipment of contraband is void and unenforceable 5.) courts usually refuse to hear arguments of parties to a void contract - the parties are in pari delicto (means equally at fault) - see term

Voidable Contract

1.) A contract that may be legally avoided at the option of one or both of the parties. 2.) A contract that may be legally avoided (canceled, or annulled) at the option of one of the parties. 3.) An agreement that may be terminated by one of the parties 4.) is an agreement when at least one party has the right to withdraw from the promise made without incurring any legal liability - that party has the power to end the enforcement of a voidable contract 5.) in some cases, a contract is voidable by BOTH PARTIES and EITHER one can withdraw - an interesting aspect of voidable contracts involves the fact that these agreements are enforceable in court until a party with the legal right to do so decides to void the contract, thereby making the agreement unenforceable - typically, this middle-ground situation arises when a party to the contract lacks capacity or is disadvantaged by specific situations such as mistake

Unenforceable Contract

1.) A valid contract rendered unenforceable by some statute or law. 2.) A contract in which the essential elements to create a valid contract are met but there is some legal defense to the enforcement of the contract. 3.) a contract for the breach of which the law provides no remedy 4.) if a nonperforming party has a justifiable reason for noncompliance with a promise, the result is an unenforceable contract - a defense exists that denies the legal enforcement of an agreement

Mirror Image Rule (Acceptance)

1.) All of the terms in the acceptance MUST MATCH all of the terms in the offer 2.) the offeree must mirror the exact same offer acceptance 3.) terms must be the same conditions as the original offer (at common law, NOT UCC) 4.) if the acceptance changes the terms of the offer or adds new terms, it is NOT REALLY an acceptance; It is a COUNTEROFFER, and negotiations continue 5.) between merchants means both parties to a contract do business in the goods being bought and sold - see term

oral contract

1.) An agreement that is not in writing or signed by the parties. 2.) A contract that is created by word of mouth and comes into existence when two or more people from a contract by speaking to each other. 3.) contract with terms spoken 4.) are generally valid and enforceable

quasi-contract (implied-in-law contract)

1.) An equitable doctrine whereby a court may award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed. The doctrine is intended to prevent unjust enrichment and unjust detriment. 2.) Imposed in certain cases to avoid unjust enrichment, even if all elements of contract formation not satisfied 3.) imposition of rights and obligations by law without a contract 4.) quasi-contracts are not TRUE contracts, but rather a JUDICIAL REMEDY to prevent one party from receiving unjust enrichment 5.) it is important to understand that the remedy of quasi-contract generally applies ONLY when no actual contract exists to cover the dispute - NOTE that quasi-contract is NOT an answer to every such situation - courts limit the number of cases - more often,, it is applied when parties clearly intended a contract, but that contract is not valid or is unenforceable for some reason (such as a lack of capacity)

implied-in-law contract (quasi contract)

1.) An equitable doctrine whereby a court may award monetary damages to a plaintiff for providing work or services to a defendant even though no actual contract existed. The doctrine is intended to prevent unjust enrichment and unjust detriment. 2.) a contract implied by law to prevent unjust enrichment 3.) A contract that is imposed by operation of law where no promise was ever manifested by words or ever intended. Benefits accepted or retained by one party and other party is expected to be paid and was not a volunteer. 4.) also known as quasi contract - see term

judicial admissions

1.) An exception under the statute of frauds allowing courts to enforce oral contracts when a party acknowledges the oral promise in a formal judicial/court environment. 2.) exception to writing contract, if defendant admits that an oral contract does exist, the judge does not have to guess about the existence. 3.) A judicial admission made during pleadings / discovery / proceeding is conclusive evidence

Definite Terms

1.) An offer should contain specific verbiage for basic items such as subject matter, time for performance and the price 2.) the terms of an offer must be clear enough to enable the offeree to decide whether to accept or reject the offer 3.) Terms must be definite enough that a court could determine the duties of the parties and be able to fashion a remedy. Uncertain terms may be cured, such as agreement to agree, by a court if the parties later disagree about those terms. 4.) under the COMMON LAW of contracts, contractual terms MUST be definite and specific 5.) indefiniteness - see term 6.) most advertisements, catalog, and web page price quotes are considered too indefinite to form the basis for a contract unless they are specific about the quantity of goods being offered, as well as the intended offeree 7.) the U.C.C contracts for the sale of goods can leave open non-quantity terms to be decided at a future time ($2-305) 8.) NOTE that this rule applies only to SALES of GOODS. It does NOT APPLY to SALES of REAL ESTATE or SERVICES ** do be very thoughtful in the choice of spoken words; decide whether you are ready to make an offer or want to continue discussions about possible arrangements **

Bilateral and Unilateral Contracts

1.) Bilateral - promise for a promise - bilateral contract - EX. if sell a laptop in exchange for $1000 - (involves 2 promises, 2 rights, and 2 duties) Unilateral - promise for an act - if the action DOES NOT OCCUR, there is NO BREACH - unilateral contract - EX. if sell 100 units a year, then a bonus of $1000 (person may not sell 100 units) - (there is only 1 promise, 1 duty, and 1 right) 2.) Bilateral: both parties make a promise (to do something) to each other. - Unilateral: one party makes a promise to the other that the other party can accept only by doing something specific. 3.) A bilateral contract is one in which both parties make promises. - A unilateral contract is one in which only one party (promissory) makes a promise. 4.) most business contracts take the bilateral form 5.) courts presume a bilateral nature of an agreement whenever there is doubt about the form

Between Merchants

1.) Both parties to a contract do business in the goods being bought and sold 2.) in any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants 3.) means both parties to a contract do business in the goods being bought and sold

Legal Detriment

1.) doing an act one is not legally obligated to do or not doing an act that one has a legal right to do 2.) when a promisee gives up the right to retain control of something he was entitled to keep, or to give up the right to do something, in exchange for a promise by the other party to the contract 3.) one party of a contract doing something that they are not required to do. Giving or promising performance when they are not obligated to do so.

Contract Law in Private Enterprise

1.) Contract need not be a formal, written document - the agreement does not have to use the word "contract" or recognize that they have made a legally enforceable promise 2.) Contract law enables private agreements to be legally enforceable - enforceability of agreements is desirable because it gives people the certainty they need to rely on promises contained in agreements - it helps make buyers and sellers willing to do business together 3.) Provides flexibility and precision in business dealings - it provides flexibility in that you can agree (or require agreement) to literally anything that is not illegal or against public policy - it gives precision in that, with careful thinking, you can make another agree to exactly the requirements that accomplish even a very complex business purpose

contracts that restrain trade

1.) Contracts that restrain trade often are illegal and void 2.) illegal and void. Monopolize, fixing prices, or dividing up markets in contract. 3.) covenants not to compete - see term - are important in protecting employers from having the employees they train leave them and compete against them - also protect the buyer of a business from having the seller set up competing business

Contractual Performance Terminology

1.) Executed Contract- Parties have performed their promises 2.) Executory Contract- Parties have not yet performed their agreement ** most business contracts are bilateral in nature involving an exchange of promises by the parties, most contracts are EXECUTORY at some time ** 3.) Ex. in more complicated business transactions, the performance or lack thereof by one party becomes very important in determining the rights and duties under the contracts - a supplier of raw materials may ship its product and await the buyer's payment; a seller's performance is executed while the buyer's performance remains executory

express and implied-in-fact contracts

1.) Express- the terms spelled out directly - arise from interactions in which parties actually discuss the promised terms of their agreement - EX. a negotiated purchase of land for construction of a manufacturing plant - both written and oral agreements are express if the terms are described 2.) Implied- assumed agreements like transactions - contract arises from the CONDUCT of the parties RATHER than from words - EX asking a person such as an accountant for professional advice IMPLIES a promise to pay the going rate for this advice even though you do not make an EXPRESS promise to pay for it

When Meeting of the Minds is Lacking

1.) FRAUD: Involves an intentional misstatement of fact that induces another to enter into a contract to which they would not otherwise agree. 2.) MISREPRESENTATION OF FACT - Intent to Deceive - One of most important elements. - Justified reliance on the misstatement by the innocent party - Injury resulting from the reliance • Fraud can be explicit • Can arise from a deceptive act by a party, such as tampering with the odometer on a car. • Silence does not constitute fraud • Failing to disclose a material fact that creates a dangerous condition may rise to fraud. 3.) INNOCENT MISREPRESENTATION: when a party misrepresents a material fact without intent to mislead, harm still occurs. -Voidable by innocent party 4.) Mistake in Contract Formation - see term 5.) duress or undue influence - see term

necessaries of life

1.) Food, clothing, shelter, medical care, and other items considered necessary to the maintenance of life. Minors must pay the reasonable value of necessaries of life for which they contract. 2.) a minor must pay the reasonable value of food, clothing, shelter, medical care, and other items considered necessary to the maintenance of life 3.) parents owe a legal duty to provide food, clothing, shelter, and other necessaries of life for their minor children

Intoxicated and Mentally Incompetent Persons

1.) In most cases involving adult capacity to contract, courts measure capacity by whether the adult was capable of understanding the nature and purpose of the contract. 2.) MENTALLY IMPAIRED: Adults with a history of medically documented disabilities. 3.) Contracts are voidable depending on the person's capability to understand the contract's nature and purpose 4.) beware of signs that an elderly person may have difficulty understanding the nature of the contractual agreement

Minors and Contracts

1.) In the United States, persons under 18 are typically minor and their contracts are considered voidable; however, if the minor voids the contract, benefits received by the minor must be returned. The minor can enforce breaches of contract by an adult while the adult's enforcement may be more limited under the bargain principle 2.) A minor may void the contract, but must may the reasonable value if it is a necessary 3.) Can enter into a contract unless otherwise prohibited by law 4.) if the minor fails to DISAFFIRM with a reasonable time after reaching majority is said to RATIFY the contract - see ratify term 5.) courts often make an exception to the standard capacity rule for minors when a contract involves NECESSARIES of LIFE such as food, clothing, shelter, medical care - and in some states-education 6.) the minor will be liable for the reasonable value of what was received under a theory of quasi-contract

Uniform Commercial Code (UCC) implied warranties for sale of goods

1.) MERCHANTABILITY - if the seller is a merchant, the goods will be of fair average quality and conform to any labeling (U.C.C. $2-314) 2.) FITNESS for a PARTICULAR PURPOSE - the goods are suitable for the buyer's purpose if the seller is aware of it (U.C.C. $2-315) ** these promises are made even if the parties do not explicitly state them (or even know of them); HOWEVER, warranties can be disclaimed in writing if t he parties soo choose **

Contract Form

1.) Oral Contracts - see term 2.) Statue of Frauds - requirement that certain kinds of contracts be memorialized in a writing, signed by the party to be charged, with sufficient content to evidence the contract - Sale of interest in land - Collateral promise to pay another's debt - Cannot be performed within 1 year - Sale of goods of $500 or more Other contracts - Insurance policies; auto repair

contract elements and defenses

1.) elements of an Enforceable Contract: - Offer - Acceptance - Consideration - Capacity - Legality 2.) Defenses to Contract Enforcement - Improper form (when a writing is required) - No true MEETING of the MINDS due to fraud or mistake

UCC Battle of the Forms

1.) Section 2-207 of the UCC changes mirror image rule involving sale of goods. - Expression or written confirmation is acceptance even with adds or changes in offer. 2.) The UCC treats the offeree's additional terms to an offer differently than how it treats an offeree's terms that contradict the offeror's offer. 3.) if at least one party to the contract is a NON-MERCHANT, the new or revised terms are considered proposals for additions to the contract 4.) when the contract is BETWEEN two MERCHANTS, the additional terms become part of the contract UNLESS one of the following takes place: 4a.) the offer expressly limits acceptance to the original terms 4b.) the proposed terms materially (importantly) alter the contract 4c.) the offeror rejects the proposed terms 5.) this provision of the UCC most often comes into play when MERCHANTS exchange form documents such as purchase orders and invoices with different terms - Courts must decide which terms are included in the final contract **- An offeree may include in the acceptance terms that are additional to or different from those in the offer. - Additional terms are those that bring up new issues. - If both parties are merchants, the additional terms will generally become part of the contract. - Different terms are those that contradict terms in the offer. - The majority of states hold that different (contradictory) terms cancel each other out. **

Past Consideration

1.) Something given or some act done in the past, which cannot ordinarily be consideration for a later bargain. 2.) something that has been performed in the past and which, therefore, cannot be consideration for a promise made in the present 3.) an act done before the contract is made is not consideration 4.) past consideration is no consideration; performance made before the parties discuss their agreement does not count

Rescission of Contract

1.) The abrogation or annulling of contract; the revocation or repealing of contract by mutual consent by parties to the contract, or for cause by either party to the contract. 2.) annulling or abrogation of contract by mutual consent 3.) the un-making, annulling or abrogation of contract by mutual consent

legality of purpose

1.) The requirement that the intent of a contract be legal for the contract to be enforceable. 2.) The intent of the contract must not violate the law. The courts will not enforce a contract that violates the law. 3.) Reasons for contract must be legal. 4.) contracts that restrain trade - see term

DURESS OR UNDUE INFLUENCE

1.) The use of force to obtain agreement. It can be physical or emotional. 2.) Action by a person that compels another to do what he or she would not otherwise do. It is a recognized defense to any act that must be voluntary in order to create liability in the actor. 3.) threatening to sue unless the parties reach a settlement is NOT DURESS

leading object rule

1.) When the promisor guarantees to pay the debt of another and the leading object of the promise is some benefit to the promisor himself, then the contract will be enforceable even if unwritten 2.) An exception to the statute of frauds' writing requirement for collateral promises. It occurs when the promisor's commitment is primarily intended to serve the promisor's own interests. 3.) an exception to the writing requirement for collateral promises exists when the promisor's intention is to directly further his or her own interests

Indefiniteness

1.) When the terms of an agreement are not sufficiently specific, the agreement does not rise to the level of a contract because of the doctrine of indefiniteness. 2.) too indefinite to form a basis for a contract unless they are specific about the quantity of goods being offered and the intended offeree.3.) not certain in amount or length

contract

1.) a binding agreement between two or more persons that is enforceable by law 2.) a contract is a legally enforceable PROMISE or an exchange of promises 3.) it is important to remember that at the heart of this topic is a promise or commitment to do or not to do something 4.) involve PROMISES that are ENFORCEABLE, with predictable CONSEQUENCES for performance failures 5.) without contracts and the court systems to enforce contracts, buyers and sellers would not be able to account for future risks or have confidence in exchanging valuable property interests

Uniform Commercial Code (UCC)

1.) a comprehensive statutory scheme that includes laws that cover aspects of commercial transactions 2.) Body of laws governing commercial transactions in the United States. 3.) section of law that governs the sale of goods 4.) most important EX of state-based legislation affecting contract law 5.) Article 2 of the UCC covers the SALES of GOODS - goods are tangible, movable items of personal property 6.) applies to individuals as well as firms - every state has adopted some version of Article 2 of the UCC 7.) Uniform Commercial Code creates special rules applicable to the SALES of GOODS - see table 8.1 for the differences between common law and UCC

unconscionable contract

1.) a contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust 2.) so grossly unfair that the courts will refuse to enforce it 3.) grossly unfair contract for the sale of goods 4.) also true as a matter of common law contracts as well as the UCC ($2-302) 5.) common type involves adhesion contracts - adhesion contracts are those that are drafted by one party and presented to the other without a substantial opportunity for revision - they include many standard form contracts - in general, adhesion contracts are often enforceable, but lack of negotiation may render such a contract unconscionable

preexisting obligation (consideration)

1.) a party to an agreement does not give consideration by promising to do something that he or she is already obligated to do 2.) does not give consideration by promising to do something they were already obligated to do, ex. paying more money during job than initially agreed to without increasing workload 3.) the preexisting obligation rule does not apply to a sale-of-goods contract 4.) the UCC states that parties to a sale-of-goods contract may make binding modifications to it without both parties giving new consideration - under the UCC, the rules of consideration also do not apply to a FIRM OFFER - a firm offer exists when a merchant offering goods promises in writing that the offer will not be revoked for a period not to exceed three months - this promise binds the merchant, although the offeree buyer gives no consideration to support it ($2-205)

Offer to contract

1.) a proposal to perform an act or to pay an amount that, if accepted, becomes a legally valid contract 2.) Document that defines the basis of employees' pay, such as salary, commissions %'s, payment schedule (monthly/bi-weekly), etc. 3.) contains a specific promise and a specific demand 4.) an OFFER contains a specific promise and a specific demand 5.) an offeror (a person making the offer) must intend to make the offer by making a commitment to the offeree (the person to whom the offer is made) 6.) many issues about an offer can and do arise 7.) EX. - is the language of te offer clear enough to conclude that a valid contract can result? - What if a person makes a statement, intending it as a joke. Is this an offer? (Courts answer this question by measuring intent from a reasonable person's perspective in the position of the offeree - This standard is known as the OBJECTIVE, rather than the SUBJECTIVE, intent of the offeror

In Pari Delicto (in equal fault)

1.) a situation in which both parties are equally at fault in an illegal contract 2.) When both parties to an illegal agreement are equally wrong in the knowledge of the operation and effect of their contract 3.) means both parties are equally responsible for the illegal agreement. No recovery for either party

enforceable contract

1.) a valid contract that can be enforced because there are no legal defenses against it 2.) a contract that can be enforced in court 3.) A contract that meets all the elements of a valid contract, including compliance with any applicable statute of frauds or other law that requires it to be in writing and signed by the parties. 4.) when courts uphold the validity of such promises, the resulting agreement is called enforceable contract

Mail Box Rule (also known as deposited acceptance rule)

1.) an acceptance is valid when dispatched, as long as the communication is correctly addressed 2.) the postmark date is considered to be the date that the contract is actually communicated if the addressee is the other party in the transaction Y30 3.) Once an item is mailed, it is presumed delivered 4.) unless the offeror specifies a particular time, the acceptance usually binds the parties WHEN THE OFFEREE DISPATCHES it 5.) the offeree frequently mails the acceptance, the acceptance becomes binding when it is "DEPOSITED" with the postal service-hence the MAILBOX RULE, also known as DEPOSITED ACCEPTANCE RULE 6.) importance of the mailbox rule is that the offeror CANNOT revoke the offer once the offeree has accepted it - an added significance is that an offeror's revocation is not effective until the offeree actually receives it - a deposited acceptance would create a binding contract even though a revocation is also in the mail 7.) an electronic means such as email still falls under the mailbox rule - 2 states employ a modified mailbox rule when the transaction involves computer information, like software; the Uniform Commercial Information Transactions Act (UCITA), which ONLY Maryland and Virginia have adopted, acceptance of such contracts is valid ONLY when received

Covenants not to compete

1.) an agreement in which one party agrees not to compete directly with the business of the other party; may be limited by geography or length of time 2.) Promises to protect employers and buyers from loss of goodwill through employee or seller competition. 3.) An agreement not to compete against a party for a set period of time within a designated geographic area. 4.) some may be illegal if if it is not reasonable as to time and space

Accord and Satisfaction

1.) an agreement made and executed in satisfaction of the rights one has from a previous contract 2.) parties' agreement to change the obligation required by their original contract and the performance of the new obligation 3.) A common means of settling a disputed claim, whereby a debtor offers to pay a lesser amount than the creditor purports to be owed. 4.) the phrase "paid in full" placed on a check offered in settlement of a disputed amount acts as an accord and satisfaction if the check is cashed or deposited 5.) occasionally, parties will try to avoid consideration by drafting one-sided contracts that obligate one party but allow the other party to escape performance; a court may determine that a one-sided contract is ILLUSORY because one party is not truly bound

promissory estoppel (detrimental reliance)

1.) an equitable doctrine that prevents the withdrawal of a promise by a promisor if it will adversely affect a promisee who has adjusted his or her position in justifiable reliance on the promise 2.) a person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery 3.) recovery if reliance on promise of another 4.) important exception to the rule requiring consideration to support a promise is the doctrine of promissory estoppel 5.) this doctrine arises when a promise justifiably relies on a promisor's promise to his or her economic injury 6.) is often used to prevent a party who has made a unilateral offer from withdrawing the offer after the requested work has begun may be used when the facts of a business relationship do not meet the requirements of an express or implied contract

Termination of Offer

1.) an offer may be terminated prior to acceptance by either action of the parties or by operation of law 2.) An offer can be terminated either by action of the parties or by operation of law. 3.) Revocation by Offeror Rejection by Offeree Death/Incapacity of Offeror Destruction/Subsequent Illegality of Subject Matter of Offer Lapse of Time/Failure of Condition(s) Specified in Offer 4.) offers create a legal power in the offeree to bind the offeror in a contract; HOWEVER, when an offer TERMINATES, the offeree's legal power to bind the offeror ends 5.) offers can terminate due to an explicit act of one of the parties; this means that either the offeror or offeree has done something BEFORE the ACCEPTANCE to destroy the offer 6.) see terminate offers acts term

express and implied-in-fact contracts key points

1.) enforcing implied-in-fact agreements is an important means of ensuring that two parties' intent to make binding promises is honored 2.) implied-in-fact agreements MUST contain the same elements as express contracts, including acceptance and consideration 3.) employers can weaken the presumption of an at-will employment relationship by making statements about employee rights and expectation in policies and manuals 4.) another context in which implied-in-fact contracts arise is when a party submits an idea to a firm, then later accuses the firm of using the idea without proper compensation to the submitter 5.) in general, parties should always strive for written agreement with terms as complete as possible. - relying on implied terms is RISKY 6.) agreements that are largely express may nonetheless contain IMPLIED provisions when parts of the transaction are left out - EX. if the contractual agreement is missing a section like the details for delivery terms - courts will try to fill in the gaps the parties fail to expressly state

silence not acceptance

1.) an offeree's failure to reject an offer does not imply acceptance. 2.) In general, an offeree's failure to reject an offer does not imply acceptance. - Another way to say this is that silence alone is not acceptance. - The offeree has no usual duty to reply to the offer even if the offer states that the offeror will treat silence as acceptance. 3.) unless there is an established practice or if that was the terms of the acceptance 4.) Don't rely on the other party's silence as evidence of acceptance - it can mislead you concerning the existence of a contract 5.) MAJOR EXCEPTIONS to this RULE: - for instance, parties may have a contract that specifies that FUTURE shipments of goods be made automatically UNLESS the offeree expressly REJECTS them - related doctrine looks at the parties' prior COURSE OF DEALING-the way they have done business in the past; silence may well imply acceptance if the parties previously dealt with each other by having the buyer take shipments from the seller unless the buyer NOTIFIED the seller in advance NOT to ship - in an implied-in-fact contract, both the offer and the acceptance may be made without explicit language; the UCC says that a contract may arise from the CONDUCT of a buyer and seller of goods (emphasis is placed on how the parties act rather than on a formal offer and acceptance of terms)

sale of an interest in land

1.) are common contracts covered by the statue of frauds 2.) includes contracts for mortgages, mining rights, and easements (rights to use another's land, such as the right to cross it with electric power wires) - however, a contract to insure land or erect a build is not an interest in land

contractual terminology

1.) bilateral and unilateral contracts - see term 2.) express and implied-in-fact contracts - see term 3.) implied-in-law or quasi-contracts - see term 4.) enforceable terminology - see term 5.) performance terminology - see term

Mutual Mistake

1.) both parties to a contract have an incorrect belief about an important fact 2.) both parties have a common but erroneous belief forming the basis of the contract; renders the contract voidable by either party 3.) a situation in which parties to a contract reach a bargain on the basis of an incorrect assumption common to both parties

exceptions to statute-of-frauds requirement that sale-of-goods contracts be in writing

1.) contract for goods specially manufactured for the buyer on which the seller had begun performance 2.) contract for goods for which payment has been made and accepted or that have been received and accepted 3.) contract for goods in which the party being sued admits in court or pleadings that the contract has been made 4.) contract for goods between merchants in which the merchant sued has received a written notice from the other merchant confirming the contract and in which merchant sued does not object to the confirmation within 10 days

basic concepts of contracts

1.) contract law in private enterprise - see term - Contract need not be a formal, written document - Contract law enables private agreements to be legally enforceable - Provides flexibility and precision in business dealings 2.) sources of contract law - see term - most contract law outlined in chapter is common law that comes from judges' decisions - common law, the courts have developed principles controlling contract information, performance, breach, and remedies - this judge-made law affects many types of contracts, including real property, service, employment, and general business contracts 3.) another source of contract law is legislation - states have enacted common law rules in statues - in some cases, legislatures have replaced common law rules with different statutory requirements 4.) most important EX of state-based legislation affecting contract law is Uniform Commercial Code (UCC) - see term

Option Contract

1.) contract to hold an offer to make a contract open for a fixed period of time 2.) A contract under which the offeror cannot revoke the offer for a stipulated time period (because the offeree has given consideration for the offer to remain open). 3.) A contract under which the offeror cannot revoke his or her offer for a stipulated time period and the offeree can accept or reject the offer during this period without fear that the offer will be made to another person. The offeree must give consideration for the option (the irrevocable offer) to be enforceable. 4.) in contracts that are not between merchants selling goods, a promise to keep an offer open for a certain time period must be supported by the offeree's consideration - such an agreement to not revoke an offer is called an option 5.) a typical use of options is found in real estate transactions 6.) a seller of land may promise to let a prospective buyer two weeks to study the deal and accept the offer at a specific price - the buyer must provide some consideration (usually a small sum of money) to the seller, or the seller's offer is not an enforceable option because it can be revoked

contract types required to be evidenced by a signed writing

1.) contracts involving an interest in land 2.) collateral contracts to pay the debt of another person 3.) contracts that cannot be performed within one year from the date of the agreement 4.) contracts for the sales of goods totaling $500 or more

consideration key points

1.) contracts require consideration for both promises. - Care must be taken in limiting one's obligations, particularly if the result is no legal detriment at all 2.) the amount of consideration is generally not an issue, but it must be more substantial than simply an acknowledgement or statement

Lawful Purpose

1.) contracts that require commission of crime are void courts will take no action on void contracts contracts in restraint on trade 2.) the contract must not be for an unlawful purpose or contrary to public policy 3.) a lawful (not illegal) reason or objective 4.) A valid contract must have as its ultimate purpose some legal act or function 5.) a basic requirement of a valid contract is LEGALITY of PURPOSE - see term

Capacity of Parties to Contract

1.) courts have traditionally held the following 3 classes to persons to lack capacity to be bound by contractual promises: 1a.) minors (also called "infants") - see term 1b.) intoxicated persons - see term 1c.) mentally incompetent person - see term 2.) capacity - see term

Other contracts

1.) covered by the statue of frauds, other contracts must be in writing in various states - EX a promise made in consideration of marriage (such as a prenuptial agreement) - EX most states require insurance policies to be written - EX several states require written estimates in contracts for automobile repair

Contract Formation

1.) how a contract is formed is one of the most important issues to understand about contract law 2.) many agreements are void, and thus unenforceable, because they lack some essential element of contract formation 3.) formation includes (see terms): - offer (before an agreement can become a legally binding contract, someone must make a specific promise to another and also a specific demand of that person; this is the OFFER) - acceptance (the other person must accept the terms of the offer in the proper way) - consideration (Both parties must give consideration to the offer; consideration is the promise to give, or the actual giving, of the requested benefit or the incurring of a legal detriment (i.e., doing something one does not have to)) - capacity (capacity of each party to enter into a binding agreement) - lawful purpose (both parties must be of legal age and sound mind, and the purpose of the agreement cannot be illegal or against public policy)

Exceptions to the writing requirements of the Statute of Frauds

1.) if an agreement is orally stated parties may be able to convince a judge that a contract does exist 2.) under certain circumstances, oral contracts are enforceable - part performance (see term) - rules involving goods (see term) - judicial admissions (see term)

Contractual Enforcement Terminology

1.) include: - enforceable -unenforceable -valid -void -voidable 2.) enforceable contract - see term 3.) unenforceable contract - see term 4.) ultimate purpose of a contract is the creation of an agreement that courts will order parties to perform or to pay consequences for the failure of performance 5.) valid contracts are enforceable - void contracts (see term) - voidable contracts (see term)

Part Performance Doctrine

1.) is an exception to the Statute of Frauds, where a court will enforce by specific performance an unwritten contract for land where the parties have begun performance (evidenced by payment, possession, and/or improvements by the buyer). 2.) where the purchaser (a) makes valuable improvements, or (b) takes possession and pays part or all of the purchase price, the purchaser may specifically enforce the contract 3.) when a buyer of land has made valuable improvements in it, or when the buyer is in possession of it and has paid part of the purchase price, even an oral contract to sell is enforceable 4.) the part performance exception sometimes is called promissory estoppel

Mistake in Contract Formation

1.) mutual mistake - see term 2.) rescission - see term 3.) unilateral mistake - if only one party is mistaken about some aspect of the contract no remedy is generally available

promise to make a gift

1.) not binding as a contract because no bargained-for consideration supports the promise 2.) Promise to give something to another is not binding as a contract because no bargained for consideration supports the promise 3.) Not binding as a contract because there is no bargained for consideration 4.) note that a true gift can be enforceable as a property transfer (not a contract), but it requires delivery of the item - moreover, even a promise to make a gift may be enforceable under a non-contract theory called promissory estoppel

Acceptance of Offer

1.) positive and unequivocal expression of a willingness to enter into a contract on the terms of the offer 2.) occurs when all parties agree to every detail of the last offer as submitted, no matter how small 3.) necessary to create a valid, enforceable contract 4.) an offer to enter into a bilateral contract is accepted by the offeree's making the required promise 5.) unilateral contracts are accepted by PERFORMING a requested act, not by making a promise; only the act of providing information accepts such an offer 6.) the language of the offer determines whether acceptance should be a promise resulting in a bilateral contract or an act resulting in a unilateral contract 7.) the rights and duties of the contracting party can turn on the form of the acceptance 8.) Don't change the terms of the offer in an acceptance unless you want to create a counteroffer 9.) mirror image rule - see term - between merchants means both parties to a contract do business in the goods being bought and sold 10.) UCC Battle of the Forms - see term 11.) silence not acceptance - see term 12.) mailbox rule - see term

collateral promise to pay another's debt

1.) promise by shareholder to pay loan of the corporation if they do not make payments, arises from a time different from the original obligation 2.) leading object rule - see term 3.) remember the difference between guaranteeing a person's performance and agreeing to become liable if a person fails to perform

capacity

1.) refers to a person's ability to be bound by a contract 2.) courts have traditionally held the following 3 classes to persons to lack capacity to be bound by contractual promises: - minors (also called "infants") - intoxicated persons - mentally incompetent persons

Statue of Frauds

1.) requires certain contracts to be in writing 2.) a state law that requires that certain contracts be in writing 3.) A state statute under which certain types of contracts must be in writing to be enforceable 4.) this rule doe not address fraud in the formation of a contract. designed to prevent potential deception or fraud from oral contracts 5.) if the required writing is not met, the parties are left with an unenforceable contract - see contract types required to be evidenced by a signed writing

termination offers acts

1.) revocation - when the offeror retracts the offer before the acceptance 2.) rejection - when the offeree rejects the offer 3.) counteroffer - when the offeree makes a counterproposal. - due to the mirror image rule described later, a counteroffer has the effect of rejecting the original offer and sending back a new offer for a different contract (but note the U.C.C. flexibilities on additional terms) 4.) Lapse of time - when the offeree fails to accept by a deadline defined in the offer or after a reasonable period of time ** circumstances in which contract law automatically dictates that an offer has expired - BEFORE the ACCEPTANCE ** 1.) subject matter destruction - when the object of the contract is destroyed or legally eliminated 2.) offeror death or insanity - when the offeror no longer has the capacity to make the offer 3.) subject matter illegality - when a change in the law renders the agreement illegal, acceptance is no longer possible

Ratify

1.) sign or give formal consent to (a treaty, contract, or agreement), making it officially valid.

Consideration

1.) something of value exchanged for something else of value 2.) not all promises are enforceable through legal action 3.) there must be come incentive or inducement for a person's promise or it is not binding 4.) the legal mechanism for evaluating the existence of this incentive is CONSIDERATION, the receipt of a legal benefit or the suffering of a legal detriment 5.) Courts WILL NOT enforce contractual promises unless they are supported by consideration 6.) to be valid, a contract MUST involve the exchange of consideration between the parties 7.) in a bilateral contract, each party promises something to the other 8.) binding promises are the consideration 9.) in a unilateral contract, the consideration of one party is a promise; the consideration of the other party is performance of an act 10.) when it is not clear whether there is consideration to support a promise, a court will often examine a transaction as a whole 11.) consideration need NOT be money, though a promise to pay a certain amount is one type of consideration 12.) important part of consideration is that it MUST be BARGAINED FOR; the consideration must be contemporaneous and a part of BOTH PARTIES' understanding of the contract terms *** valid consideration can include any promise to: a.) do something one has no obligation to do b.) refrain from doing something one has the legal right to do c.) in the case of a unilateral contract, a performance when there is no obligation to do so *** 13.) agreement not to sue - see term 14.) preexisting obligation - see term 15.) past consideration - see term 16.) promise to make a gift - see term 17.) option contract - see term 18.) promissory estoppel - see term

rules involving goods

1.) the law strives to facilitate transactions involving goods as long as the parties cannot deceive the judge who is asked to determine a contract's validity 2.) Exception to the requirement for a written contact in some cases; occurs when someone has already started manufacturing specialized goods for a customer 3.) exception to writing contract, as long as parties cannot deceive the judge.

cannot be performed within one year

1.) the statue of frauds applies to a contract the parties cannot perform within one year after its making 2.) courts usually interpret the one-year requirement to mean that the contract must specify a period of performance longer than one year 3.) an oral contract for services that lasts 20 months or a lease of longer than one year are generally not enforceable 4.) an oral contract for services to be completed "by" a date 20 months away is enforceable 5.) as interpreted by the courts, the statute of frauds applies ONLY to executor contracts that the parties cannot perform within a year

Sale of goods $500 or more

1.) under the UCC, the stature of frauds covers sales of goods of $500 or more 2.) Modifications to such are also included and must be in writing 3.) contracts involving the sale and purchase of goods that are less than $500 usually are performed quickly

agreement not to sue

1.) when reasonable grounds for a lawsuit exist, an agreement not to sue is consideration to support a promise. 2.) consideration to support a promise when reasonable grounds for a lawsuit exist 3.) consideration to support a promise 4.) each has surrendered the right to have a court determine exactly what amount is owed 5.) accord and satisfaction - see term